S&P said that they would continue to monitor, over the next six to 12 months, the success or otherwise of the new government’s ability to pass revenue and expenditure measures through both houses of parliament. (Reuters)

“The negative outlook on Australia reflects our view that without the implementation of more forceful fiscal policy decisions, material government budget deficits may persist for several years with little improvement,” the rating agency said.

“Ongoing budget deficits may become incompatible with Australia’s high level of external indebtedness and therefore inconsistent with a ‘AAA’ rating.”

The warning of a rating downgrade is a blow to Prime Minister Malcolm Turnbull, who is just pulling within striking distance of the votes needed to form a narrow majority government after a cliffhanger election left the country in limbo, and his leadership in doubt.

“We will continue to monitor, over the next six to 12 months, the success or otherwise of the new government’s ability to pass revenue and expenditure measures through both houses of parliament,” S&P said.